What the New Unemployment Numbers Are Telling Us

The new unemployment numbers are a lot worse than the headlines indicate. The news media is breathlessly reporting today that 120,000 jobs were created in November. But with the working age population increasing by about 160,000 people each month, job creation isn’t even keeping up with the number of people entering the work force. So how is it possible for the unemployment rate to fall from 9.0 to 8.6 percent?

The explanation is actually pretty simple. People are only counted as unemployed as long as they are actively looking for work. It is good news when the number to falls if it means that Americans are getting new jobs. It is not so good if the number falls because people are simply giving up looking for work.

In November, the numbers could hardly have been worse -- 487,000 people simply gave up looking for work and left the labor force. That is the 6th worst report since the recession started 48 months ago. Even more startling, 5 of those 6 worse reports have occurred since the “recovery” supposedly started in June 2009 (See this link here).

Having people giving up looking for work in such massive numbers probably isn’t too surprising. The average number of weeks that the unemployed are looking for work has reached record lengths – almost twice the previous record set during the Reagan administration. And things have only gotten worse: the longest job searches weren’t during the recession – the longest searches for jobs were taking place during 2011, two years into the “recovery.”

By the end of the recession in June 2009, 27 percent of the unemployed searched for work for over six months. In November, that stood at almost 43 percent.

The 120,000-job growth number only looks good in comparison to how bad things have been going. In normal times members of the media would regularly point out that you can’t lower the unemployment rate unless job growth keeps up with the growth in population. But even these 120,000 are likely to be revised downward substantially next month.

The 120,000 number is based on a survey by the Department of Labor of businesses (the so-called Establishment Survey), and these numbers will be adjusted over the next couple of months. A much more comprehensive measure that does an extremely good job of matching the final adjusted Department of Labor numbers is the daily income-tax deposits to the U.S. Treasury from all salaried U.S. employees. These deposits usually are within 10 percent of the final Department of Labor numbers, and they showed only 64,000 jobs being added in November.

The second concern is that a large number of the jobs being created are “temporary service sector” jobs. Even accepting the 120,000-job growth number, fewer than 100,000 of them are permanent jobs. Firms have simply not been willing to commit to giving people long-term employment.

Again, this isn’t really very surprising. The massive number of regulations coming out of Washington DC these days make it hard for companies to plan for the future. If you don’t think the regulations are getting bizarre, take one proposed regulation that was just reveal this week. The Obama administration wants to ban many children under 18 from working on their family farms. And don’t even think of letting them try helping out on their grandparents’ or neighbors’ farms.

The only problem is that even Obama knew that was false. Republican leaders in both the Senate and House supported the extension, they just objected to the higher income taxes that Obama wanted to impose on higher income individuals. Indeed, at another speech that same day to another audience Obama acknowledged that Republican House Speaker John Boehner of Ohio and Republican Senate Minority Leader Mitch McConnell “have both indicated that it probably does make sense not to have taxes go up for middle class families.”

But with a staggering nearly 500,000 leaving the labor force in just one month, it is hard to get excited about 120,000 jobs being created, an increase that doesn’t even match the growth in the working age population. People are supposed to be entering the labor for, not leaving it, during a recovery.